The Thoughtful Forecaster

* Forecasting is an impartial strategic ingredient that will ensure apt base for reputable planning. Our forecast is always the first step in developing plans in running the business along with our future plans of growth strategies. With this tool, we are able to anticipate our sales within reason that then can allow for us to control our costs in conjunction with inventory which will then help us to enhance our customer service. Sales forecasting is a vital strategic tactic in our company’s methodology.

Introduction to Financial Planning and how do we create an integrated plan: Focus on cash flow forecast using operations plan

Chapter 2 of the text book begins with an exercise designed to test the reader’s knowledge. The reader is to have a bounded range where a 98% confidence level is reached. I failed miserably in this exercise, which is probably why the chapter led with it. Bazerman writes that overconfidence is “the most robust finding in the psychology of judgment.” (p. 14) It is appears to be an innate characteristic for much of the population. Overconfidence has been studied by psychologists and three characteristics of overconfidence commonly appear: overprecision, overestimation, and overplacement. I am glad to know that I am a part of much of the population.

Firstly, accurate forecast could save the company huge amount of money. Andrew suffer inventory carry cost since the first round. The analysis could be done specifically over competitors' actions and intentions. Andrew is expected to distribute capital more efficient than

Transocean and BP allowed several biases to alter their decision-making skills. There are eight decision-making biases that can take a major toll on decision making. Also, judgmental heuristics are in effect when these biases occur. Judgmental heuristics is a mental shortcut that people use to come to a solution quickly and process information quickly (Moisand, 2000). Of the eight biases that alter decision making, representative heuristic, confirmation bias, and mainly the overconfidence bias. The representative heuristic is an assessment of the probability of an event happening a certain way because it has happened that certain before (Nilsson, Juslin, & Olsson, 2008). If this issue has occurred before, it is likely that these top two employees based their decision to do nothing off of what happened before. Also, the confirmation bias displays itself greatly within this case. The top two employees decided to make their decision before researching what is causing the issue.

Analyzing the company’s performance compared to its historical figures is always useful; nevertheless, these historical figures can be also a very useful tool to forecast future ProForma figures. We usually start by forecasting future sales (based on an average increase in sales figure) and other balance sheet and income statement items are forecasted as percentage of sales, this percent is normally consistent from historically figures. A close look should be given to the company’s operations and plan for the coming year while making our assumptions and forecasted figures. Normally we should follow

Much like the recency effect displayed by the Everest expedition leaders, we open additional trap doors for our estimating and forecasting approaches by relying too much on prior performance in spite of changing conditions. The past is

Biases impacted many decisions wholeheartedly in this case. One instance in this case study would be the worker disagreements, and the instance from when BP and Transocean disagreed. The disagreements among the workers from the two firms resulted from discussion about buildup of pressure in the well. This resulted in bad coordination among both entities. One was situated on one outcome and the other group was set around their decision. To me this represents displayed signs of how things were looked upon as one-sided and partial. The text states that, “Judgmental Heuristics represents rules of thumb or shortcuts that people use to reduce information-processing demands” (Kreitner & Kinicki, 2013, p. 335). There were many shortcuts taken in this case study, especially highlighting how gathering information about less risky well designs should have been considered instead of focusing on choosing the cheapest option among other alternative

The Overconfidence Hypothesis describes the tendency of individual investors to trade excessively based on a mistaken belief that they can pick winners and losers better than investment professionals. Overconfidence is characterized by three main tendencies. First, overconfident investors tend to overreact to

People at cocktail parties are always asking me for stock tips, and then they want to know how my predictions have turned out. Their requests reveal the common but fundamentally erroneous perception that forecasters make predictions. We don’t, of course: Prediction is possible only in a world in which events are preordained and no amount of action in the present can influence future outcomes. That world is the stuff of myth and superstition. The one we inhabit is quite different—little is certain, nothing is preordained, and what we do in the present affects how events unfold, often in significant, unexpected ways.

When comparing decision biases it is sometimes difficult to easily see the differences. Selective perception and confirmation bias are different in because of emotion. Selective perception is based on needs, motivation or experiences and confirmation bias is based on preexisting beliefs or personal memories. Confirmation biases contribute to overconfidence in personal beliefs and can maintain or strengthen beliefs in the face of contrary evidence. Poor decisions due to these biases have been found in political and organizational

Forecasting is the ability to plan ahead for future expectations of what the future may hold. For example, business forecast every year for what they feel that

Strategic forecasting provides organizations the ability to prepare for long-term future events (Hines & Bishop, 2006). Businesses utilize forecasting as part of their business plan. It assists in the growth and vision of the organization. A business plan can play an important part in the success or failure of an organization. “Company strategies include influencing the environment to correspond to that used for forecasts. At the same time, companies recognize that changing variables in the environment may influence forecasts” (Markgraf, n.d.). Forecasting is just as important in crisis action planning.

Overconfidence is related to five types of heuristics, which are illusion of control, anchoring, hindsight, representativeness bias, and confirmation bias. Illusion of control is the belief that people can influence outcomes that actually cannot be influenced (Langer, 1975). By relying on quantitative credit scoring models, managers believed that they can take charge of the market, overlooking the concept of systematic risk, which can never be avoided. Anchoring refers to the behavior that people evaluate an event based on past data (Dedu, Sebastian and Radu, 2011). Because financial derivative instruments became increasingly complex, managers were

Selective perception is an aspect that influence decision making corresponding to the hypothesis of Hastorf and Cantrill which states that out of all the occurrences going on in the environment, people will choose those that is important to them in their own egocentric perception. Specifically, in the study of escalation of commitment Biyalogorsky, Boulding, and Staelin established that one of the most influential drivers of intensification is biased belief updates. In the investigation, students received statistics regarding recent merchandise with the history of its marketed competitors, based on this information they had to decide whether the organization should invest 2.5 million to improve and relaunch the product. Additionally, in the second part of the experiment the students received new information that was negative about the net present value forecast for the investment. Notably, the result of the experiment reveals that the student did not update their beliefs concurring to the new information, and in the final analysis, their evaluation was influenced by their initial beliefs. Selective perceptive seem to have occurred (Steinkuhler et al. 2014).